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Covid resets corporate credit scene as cautious companies rush to repay loans

Amid deep uncertainties triggered by Covid‘s second wave, there has been a noticeable reset in priorities for many Indian companies, a report by showed.

A significant number of major corporate borrowers are seeking to deal with this uncertainty by cutting down on loans in order to reduce their debts, the research found.

This cautious, conservative approach driven by the current instability is also reflected in the changed nature of companies’ books. There has been a sizeable increase — around 35% — in cash holding/bank balance of the top 1,000 Indian companies as of March 2021 compared to the same period a year ago.

This particular trend is not limited to any specific sector and is being seen across the whole business landscape. Oil, steel, fertiliser, cement — all of them have seen companies cut borrowing in a major way during the year.

Over a thousand listed companies across the economy’s top 15 sectors saw debts drop by around Rs 1.7 lakh crore in FY 2020-21.

SBI chief Dinesh Khara recently told ToI that Indian companies were turning risk-averse.

There is low appetite for new investments as the economy has yet to recover in any meaningful way, the report said. New investment announcements witnessed a precipitous 67% fall in 2020-21, it added citing CMIE data.

Many of these companies are simply not making any new investments because of the lack of demand. Many others, though, have made the shift to the capital market for funds instead of going to banks for loans, the SBI research found.

The report said that “companies are taking advantage of a low term structure of interest rates, and reducing their loan liabilities, to facilitate a lower finance cost from capital markets.”

This rush to repay caused credit growth to come down in FY21 in a big way, data shows. That fall has continues in this financial year too, RBI numbers reveal.

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